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IRA Calculator

Compare Traditional, Roth, SEP, and SIMPLE IRAs against a taxable account.

IRA Comparison Calculator

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Compare Retirement Accounts: Traditional IRA vs. Roth IRA vs. Taxable

Our IRA Calculator helps you compare the future value of different retirement accounts to see which one might be best for your financial situation and tax strategy.

What is an IRA?

An Individual Retirement Arrangement (IRA) is a tax-advantaged investment account designed to help you save for retirement. There are several types of IRAs, but the two most common are the Traditional IRA and the Roth IRA. The key difference lies in their tax treatment. With a Traditional IRA, your contributions might be tax-deductible today, but you'll pay taxes on the withdrawals in retirement. With a Roth IRA, you contribute after-tax dollars, but your qualified withdrawals in retirement are completely tax-free.

How the Calculator Works

This calculator projects the growth of your investment in three different account types based on your inputs. It models how taxes affect your contributions and withdrawals differently for each account.

  • Traditional IRA: Grows tax-deferred. The calculator assumes your full pre-tax contribution is invested and grows, then applies your retirement tax rate to the final balance.
  • Roth IRA: The calculator first "pays" your current tax rate on the contribution, investing the after-tax amount. This smaller principal then grows completely tax-free.
  • Taxable Account: Similar to the Roth, contributions are made after-tax. However, the calculator also deducts taxes from the investment gains each year, reducing the power of compounding.

Interpreting the Results: Which Account is Best?

The most important line in the results table is **"Balance at age X (after tax)"**. This shows the actual spendable money you would have from each account after all taxes are paid.

  • If the **Roth IRA** after-tax balance is highest, it suggests you may be better off paying taxes now. This is common if you expect your income (and tax rate) to be higher in retirement.
  • If the **Traditional IRA** after-tax balance is highest, it suggests you may benefit from taking the tax deduction now and paying taxes later. This is often the case for those in their peak earning years who expect to be in a lower tax bracket in retirement.
  • The **Taxable Account** result almost always underperforms due to "tax drag"—the annual taxes on gains that hinder compounding. This highlights the significant advantage of using specialized retirement accounts.

Common IRA Myths

  1. Myth 1: An IRA is an investment. False. An IRA is a type of account. You still need to choose investments (like stocks, bonds, or mutual funds) to hold within the account.
  2. Myth 2: I make too much money for an IRA. While there are income limits for contributing directly to a Roth IRA and for deducting Traditional IRA contributions, anyone with earned income can contribute to a Traditional IRA. You may also be able to do a "backdoor" Roth IRA conversion.
  3. Myth 3: I can't touch my IRA money until I'm 59½. While there are penalties for early withdrawal of earnings, you can always withdraw your original Roth IRA contributions (not earnings) tax-free and penalty-free at any time, for any reason.

Frequently Asked Questions

What is the difference between a Traditional and Roth IRA?

The main difference is how they are taxed. Traditional IRA contributions may be tax-deductible now, and you pay income tax on withdrawals in retirement. Roth IRA contributions are made with after-tax dollars, meaning your qualified withdrawals in retirement are tax-free.

Which IRA is better, Traditional or Roth?

A Roth IRA is generally better if you expect to be in a higher tax bracket in retirement than you are now. A Traditional IRA may be better if you are in a high tax bracket now and expect to be in a lower one in retirement, as you get the tax deduction upfront.

How much can I contribute to an IRA?

For 2024, the maximum contribution limit for both Traditional and Roth IRAs is $7,000, or $8,000 if you are age 50 or older. Contribution limits may be subject to income phase-outs, especially for Roth IRAs.

Can I have both a 401(k) and an IRA?

Yes, you can contribute to both a 401(k) and an IRA in the same year. However, your ability to deduct Traditional IRA contributions may be limited by your income if you are also covered by a retirement plan at work.

Tips for IRA Investing

  • Automate Your Contributions: Set up automatic monthly transfers to ensure you are consistently saving.
  • Maximize Contributions: Aim to contribute the maximum amount allowed each year if possible. The "catch-up" contribution for those 50 and older is a great way to supercharge your savings.
  • Choose Low-Cost Investments: Select low-cost index funds or ETFs within your IRA to maximize your long-term returns by minimizing fees.
  • Re-evaluate Annually: Your income and financial situation may change. Review your IRA strategy annually to ensure it still aligns with your goals.

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